Memo 2/9/10

MEMORANDUM

To: WLM Client Base

From: William L. Meyer, CLU, CHFC

Re: Market Correction & Manager Removal

2/9/10

Commentary

The correction that I have been expecting since October has arrived, but I do not know how long or short lived it will be. A 10-15% correction is normal even if we are in a bull market. Per our last communication, I will be legging into the market starting with yield plays which will likely suffer less in a greater drop. In terms of equities going forward, the focus will be on companies with strong balance sheets and most with exposure to the global market—which means primarily large-cap stocks for now, which were more detailed in my January memo.

Last year despite the 23.5% gain in the S&P, the risk was significant. One indicator the Federal Reserve uses is the consensus earnings forecast for the S&P which dropped from 100 in 3/08 to a low of 58.73 in 10/09. (Source: Thompson Reuters) Given the slight improvement in the economy and corporate cost cutting the earnings forecast of the S&P is back up to 75.92 as of 1/29/10. The point is, the risk appears to be reducing based on this and other leading indicators, but the risk of a W (double dip recession) for the economy is still a realistic possibility. Therefore, even though the economy is not at risk of falling into a depression, it is nowhere near healed given high worldwide debt, high unemployment domestically, commercial real estate mortgages troubles’, etc. It is therefore still a time to be cautious and a full recovery may take years this time around, especially given the lack of credit available to small businesses.

Manager Removal

Last year, starting in July, I moved millions of your funds collectively to Purcell Advisory Services, LLC. I have had my spouse’s money with them for years and their track record was good. The purpose of putting monies with Purcell’s Olympic Blend III was to provide trading profits to offset and be able to utilize the losses realized in your accounts in 2008 and/or provide a hedge in a falling market. The diversity of the managers in the program has actually been a negative as they in recent history have tended to offset one another. An Absolute Return manager’s goal is to make a positive return in all markets. It is very unusual for me to terminate a manager in less than a year, but given recent market action and their lack of alpha in a falling market especially, is what drove this decision. I have been thinking and praying about this decision, and have dreaded having to communicate this to you. I will be removing your funds from Rydex and returning them to your accounts here at Cutter. The idea of Absolute Return funds is still a strategy I intend to play on your behalf, but not with Purcell.

Thank you for your continued confidence and business!